A couple of the most important aspects of successfully earning a living by flipping homes are purchasing these homes for low prices and having the ability to sell them quickly after the renovations are complete. The downside to getting into this industry for many people is financing. If you want to begin flipping homes and are having trouble finding a way to finance your first project, you may want to consider looking into a hard money loan from companies like Lima One Capital.
What Is a Hard Money Loan?
A hard money loan is a unique type of loan that is easier to get than other types. Hard money loans are not based on a person's credit score or creditworthiness, but they are instead based on the value of the property the applicant wants to purchase.
Hard money loans are not typically issued by regular banks, but there are certain institutions that specialize in these types of loans. If you would like to buy a cheap house to flip, a good way to get the money to buy it is through a hard money loan.
The one crucial thing that will make or break the deal involves the value of the house compared to the price you will pay. When you want to borrow money through a hard money loan, you will only be able to borrow 70% or less of the value of a property. This means that the appraisal on the house you are looking at must come out a lot higher than the price of the home.
What Are The Benefits of Hard Money Loans?
Hard money loans have numerous benefits over traditional types of house loans, and these include:
- Faster – Getting a hard money loan is something you can do a lot faster because there are fewer requirements. There is typically no credit check needed and the closing takes place fast. If you have worked with a lender in the past and have had hard money loans, you might be able to get the funds you need in only a few days. This occurs because lenders will base their decision on your reputation. If you have proved that you are responsible in the past, your lender may get to know you well enough that to trust you with more loans.
- Easier – If you have bad credit or inconsistent income, qualifying for a regular loan might not be easy. This is another benefit of choosing a hard money loan. If you can prove that there is already a lot of equity in the house you are buying, you should have no trouble getting the loan.
Despite these advantages, there are several other things you should know before choosing to get a hard money loan.
Would This Be a Good Option For You?
Getting a hard money loan can be a great idea, but there are also times when it is not a good idea. For house flipping, hard money loans tend to work out great. The reason for this is that they are designed for short-term purposes. When you purchase a house to flip, you will need to remodel it and sell it quickly in order to make a decent profit.
Hard money loans are costlier than other types of loans, and this is why they are perfect for flipping houses. According to Bigger Pockets, the interest rate on hard money loans is usually at least 12%, but many are higher than this. Because this rate is so high, you should not use a hard money loan unless it is for a short period of time.
House flipping can be a great way to make money, but it takes money to make money. If you would like to learn more about loan options and types, contact a lender that offers hard money loans.
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